Working Capital Loans, Invoice Financing and Supplier Financing can all help a business manage working capital, but they solve different problems.
A Working Capital Loan gives the company a fixed amount of financing upfront.
Invoice Financing allows the company to access money tied up in outstanding customer invoices.
Supplier Financing helps the company pay its suppliers without using up all of its own cash upfront.
The right facility depends on where the business’s cash is tied up and what the financing is needed for.
Working capital loan
A Working Capital Loan is generally suitable when the company needs a defined amount of financing for its broader working capital requirements.
The funds can be used for purposes such as:
- Purchasing stock or materials
- Paying suppliers and operating expenses
- Taking on larger orders
- Funding business expansion
- Supporting multiple projects or business activities
For example, a company may require S$300,000 to support several projects or increase its operating capacity. A Working Capital Loan provides the financing upfront, which can then be deployed according to the business’s needs.
Under the Enterprise Financing Scheme (EFS) Working Capital Loan, eligible businesses can apply for up to S$500,000, subject to the lender’s credit assessment and applicable scheme requirements.
Invoice financing
Invoice Financing is more specific.
It is generally used when the company has already completed work or supplied goods and has outstanding invoices that have not yet been paid.
For example, a construction company may complete a project milestone and issue a S$200,000 invoice to its customer, but the customer only pays after 60 or 90 days.
Instead of waiting for the full payment cycle, the company can use Invoice Financing to access part of the invoice value earlier.
This helps untangle cash that is already sitting in the company’s receivables, allowing the business to pay suppliers, subcontractors and other operating expenses while waiting for its customer to pay.
Supplier financing
Supplier Financing works from the other side of the transaction.
Instead of the company paying its suppliers entirely out of its own cash, the financier pays the suppliers on the company’s behalf.
The company then repays the financing according to the agreed terms.
This can help untangle the company’s cash flow because the business does not have to use a large amount of its own cash immediately to settle supplier payments.
For example, if a trading company needs to purchase S$300,000 of stock from its suppliers, Supplier Financing may allow the suppliers to be paid while the company preserves its own cash for other operating requirements.
This can be particularly useful when the business has regular supplier payments or needs to purchase larger quantities of stock.
Which one is more suitable?
The simplest way to look at the difference is:
Working Capital Loan:
You need a defined amount of cash for the business.
Invoice Financing:
Your cash is tied up in invoices that customers have not paid yet.
Supplier Financing:
You need to pay suppliers but do not want to use all your own cash upfront.
The financing requirement, financial position, existing facilities, industry and transaction structure will determine which facility is suitable.
Can a business use more than one?
Yes, depending on the business and the lender.
A company may have a Working Capital Loan for its broader financing needs while also using Invoice Financing for outstanding receivables or Supplier Financing for larger supplier payments.
These facilities serve different purposes, so the relevant question is not simply which product is “better”.
It is where the cash is tied up and what the business needs the financing to do.
At Cornerstone Capital Services, we assess the business and funding requirement first before determining which financing routes may be suitable.
Speak to us about your financing requirement
If your company is looking to raise financing, send us your company name, approximate amount required and purpose of funding.
We can assess the profile and determine which financing routes may be worth considering.
